Health care tech investments attract Life Sciences Greenhouse

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When John Manzetti came aboard as Pittsburgh Life Sciences Greenhouse CEO in 2006, the organization had a major hole in its portfolio -- not a single investment in the emerging field of health care information technology.

"We had zero companies, because we didn't have anybody to chase" the money, Mr. Manzetti said.

Follow the money isn't just a Watergate catchphrase -- it's the guiding rule when it comes to soliciting investor capital. And for the last several years, investors in the health market have been telling the South Side greenhouse to invest in health care IT.

Greenhouses like these solicit money from potential investors and then steer seed capital to start-ups. Since its formation in 2001 as a joint partnership among the University of Pittsburgh, Carnegie Mellon University, UPMC, Pittsburgh's regional foundation community and the state of Pennsylvania, the Pittsburgh Life Sciences Greenhouse has invested $19 million in more than 80 companies.

"The money wants to follow something that has a little more certainty [and] clarity as to how that gets to commercialization," Mr. Manzetti said. The biggest chunks of the organization's $19 million portfolio -- medical devices, therapeutics, biotech tools -- usually need Food and Drug Administration clearance before they can get to market.

Apps and software, on the other hand, do not. That's why, at least when it comes to the greenhouse's investments, biotech tools, devices and diagnostic technology segments are stagnant, while health IT is growing.

It's one of the only segments that is attracting new venture capital, here or nationally, leading to tough times all around for life sciences.

Venture capital is fleeing the segment thanks to poor returns -- therapeutic medicines in particular can take a decade, plus a billion dollars in research and trials, before they get to market. Most don't even make it that far, given the sector's failure rates. As a result, life science start-ups as well and the greenhouses that fund them are scrambling for money, particularly since the recession.

That's one reason the Pittsburgh greenhouse is downsizing, announcing this summer that it would cut four staff positions and shed half of its office space.

For life sciences research and development, "a lot of things changed after the crash," said Stephanie Marrus, director of the Entrepreneurship Center at the University of California, San Francisco. She said 2007 was the peak and 50 percent of the venture capital in the life sciences realm has disappeared since then.

With diminished resources available, investing in IT looks safer and cheaper.

"Digital health [is] an easier way to play in this game," Ms. Marrus said. If someone can build a new health app, they can "escape the challenges of developing a new drug."

Today, the Pittsburgh greenhouse has about $2 million tied up in various companies in the health IT realm, a sector that is broadening by the day. Top of mind, health information technology might suggest the tools that connect doctors, insurers and hospitals, allowing them to share records -- but there's far more to it than that.

Just look at three of the greenhouse's seven most recent investments, totalling $315,000 in the first half of 2013.

PHRQL Inc. (pronounced "freckle," meaning Personal Health Recording for Quality of Life) is a software and records company working on a new technology that will allow dietitians to track a patient's eating habits via grocery store purchases.

NewCare Solutions is working on sensors that can monitor senior citizens remotely for caregivers or even adult children, tracking kitchen usage, water consumption, utilities, even lighting and TV use, in home or institutional settings.

And Wellbridge Health is a small Pittsburgh company working on technology to better track patient care in order to reduce costly hospital readmissions.

The life sciences research field generally breaks down into five broad categories: therapeutics (drugs and medicines), diagnostics (tools and tests to diagnose diseases), biotech tools (devices to cure and monitor diseases), medical devices (such as implants, joints and prosthetics) and health IT (hardware, software and health-related mobile devices and apps).

Mr. Manzetti noted the shift toward funding more health care IT technologies was a decision made more easily in Pittsburgh, given the strength of the University of Pittsburgh and Carnegie Mellon University spin-offs.

Other, separate greenhouses may have their own regional strengths: The Life Sciences Greenhouse of Central Pennsylvania can still invest in lots of medical devices coming out of Penn State, while BioAdvance, the life science greenhouse in Philadelphia, has a lot of therapeutics to choose from.

On the whole, health care information technology looks promising, even if that promise has not yet rewarded investors with reliable returns.

"The giant sucking sound you hear is money moving from life sciences into social media," said Steve Blank, author and expert on Silicon Valley entrepreneurship and start-ups.

He, like many in the field, say the federal government, which spends more than $100 million on applied research every year, needs to likewise invest in the commercialization of that research -- otherwise, the U.S. cedes the life sciences and therapeutics field to China and Singapore, while our own capital pursues "fad-based investment."